Apple Music catching up in streaming wars

Since the launch of the iPod and iTunes player in 2001, Apple Inc. has tried to change how people access music.

In the ensuing years, it delivered to consumers the iTunes store, the iPhone and, eventually, the streaming service Apple Music. In most of those instances Apple handily eclipsed rival products and services – think BlackBerry phones or even the Sony MiniDisc player. The exception is Apple Music, the $10-a-month all-you-can-stream service that launched in 2015, nearly seven years after its chief rival Spotify Technology SA, and still very much locked in a battle for market share.

Apple’s “services” business line is the company’s second-biggest money maker, delivering nearly US$10-billion in revenue last quarter – surpassed only by iPhone sales. Chief executive Tim Cook said on a recent conference call that the company is on track to hit nearly US$50-billion in annual services revenue in 2020 – double that of 2016.

Of all the segments in that business line – including the app store and cloud storage – Apple Music extends the company brand well beyond Apple products. And it has a very loud cheerleader.

“We are, really, the merger of art and technology,” says Zane Lowe, a veteran BBC Radio 1 DJ who joined Apple in 2015. Mr. Lowe, who spoke with The Globe and Mail by phone earlier this month, now hosts the flagship show on Beats 1, the radio station at the centre of Apple Music, which he said is “incredibly" instrumental to the company’s strategy. “Every time there’s been a significant distribution shift in the digital age, it’s come through Apple’s ecosystem," he says.

Analysts have been flagging Apple’s services business as a beacon of light; the iPhone accounted for three-fifths of Apple’s US$63-billion in revenue last quarter, but unit sales are plateauing. “As the smartphone market matures, services takes the growth baton from devices, which ultimately results in more stable growth and higher margins,” wrote Morgan Stanley’s Katy Huberty in a November report.

Long-time music industry analyst Mark Mulligan has watched Apple elbow its way into streaming, and has noted an emphasis on service businesses that could see Apple Music’s visibility grow further. The company could bundle new phones with Apple Music subscriptions, for example, or use its rumoured potential acquisition of the radio network iHeartMedia to expand both brand awareness and income.

“The longer-term role for Apple Music is about how can it start really driving concrete revenue impact on the rest of the business,” Mr. Mulligan says. Apple doesn’t share country breakdowns, but according to an analysis by Mr. Mulligan’s firm Midia Research, Apple Music pulled ahead of Spotify in the United States, the No. 1 recorded music market, in 2018 – with Apple at 26.3 million users and Spotify at 25.5 million.

Mr. Mulligan believes more artists will use services such as Apple and Spotify to bypass traditional labels to reach listeners in 2019; last year, according to his analysis, such “artist direct” revenue rose 35 per cent to US$643-million. Apple Music has played a key role in some artists' careers by enabling this – such as independent Toronto R&B singer-songwriter Daniel Caesar, whose song Get You debuted on Mr. Lowe’s show in 2016 and benefited from millions of Apple streams.

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Mr. Caesar has since gone platinum in Canada and the U.S., and earned three Grammy nominations. “An artist like Daniel comes around, you hear the music, you realize it deserves to be heard,” Mr. Lowe says. “It’s the same as it was for me when I was a kid at school and I would hear a band or a song I loved. I would have to tell my friends at school about it.”

Apple touches much of the entertainment industry, and uses this to the benefits of artists it chooses to lift up. It also integrates digital radio shows such as Mr. Lowe’s with its enormous on-demand streaming library – a deliberate strategy. “The overall goal for music streaming services is to keep people in that service,” says Catherine Moore, an adjunct professor of music technology at the University of Toronto.

Like in his time as a BBC DJ, Mr. Lowe sees the platform’s role as a chance to highlight artists - this time with more avenues to do so. “Apple’s given us an amazing amount of investment and time and faith to go and build tools that say, hey, we want to put you on a late night TV show, or we want to go and have some content created for you that’s going to reach a lot of people."

Mr. Lowe was tipped off to Mr. Caesar by Carl Chery, then Apple’s head of artist curation. Mr. Chery, as it happens, jumped over to Spotify as a creative director earlier this year – a sign that there is no clear winner yet for streaming music’s market share. Spotify isn’t tethered to a hardware brand, after all, and its free tier can pull in a wider range of consumers – there are more than 100 million of them – who can then be enticed to pay for full subscriptions.

Mr. Lowe declines to discuss competition outright, but seems unfazed by it. “Apple Music is only just getting started," he says. "We’re only four years into what I think will be a really long era of streaming.”

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